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Egypt: Sisi re-election likely in March 2018

Risk Outlook

President Abdel Fattah el-Sisi is likely to be re-elected in March 2018, supporting policy continuity on the economy. Economic risks will continue to stabilise in the medium-term, as the government implements reforms and foreign investment returns to the country. Despite elevated security risks, investors in water infrastructure projects will benefit from a robust public-private partnership (PPP) framework.

Security Environment

President Abdel Fattah el-Sisi is likely be re-elected in March 2018’s presidential election, given support from parliament and the military, and the absence of a viable political opposition. Sisi’s economic reform programme has not resulted in significant civil unrest, despite austerity measures and elevated inflation rates. However, sporadic protests are likely in the one-year outlook. These are not likely to challenge Sisi’s position and will be attended by limited numbers of people. If protests were to escalate in frequency and intensity, the government would likely respond with force, elevating the risk of death and injury to bystanders.

Egypt will continue to face a heightened terrorist threat from Islamist groups in 2018. In November 2017, suspected Islamic State (IS) militants attacked a Sufi mosque near Arish using firearms and improvised explosive devices (IEDs), killing 311 people. IS will seek to expand its operations beyond the Sinai Peninsula in the coming year, and is likely to launch similar attacks on religious minorities and government assets in Greater Cairo and Nile Delta. Tourism resorts in southern Sinai, such as Sharm al-Sheikh, will also be aspirational targets. Firms operating in Egypt should ensure that adequate crisis management procedures are in place, should employees be affected by a terrorist incident.

Trading Environment

Economic risks have stabilised in Egypt as the country progresses with structural economic reforms as part of its engagement with the International Monetary Fund (IMF). Reforms have supported investor interest in Egypt, underpinning a positive growth outlook. Real GDP growth is forecasted to grow by 4.9% in 2017/18, up from 4.1% in 2016/17.
Following a review of Egypt’s Extended Fund Facility (EFF), in December 2017 the IMF released a USD 2.03 billion tranche of funding to Egypt, bringing the total distributed to USD 6.08 billion. The disbursement will further bolster Egypt’s foreign currency reserves, which reached USD 37.2 billion by the end of 2017, the highest level since March 2011. Increased reserves will alleviate hard currency shortages facing companies, and will continue to reduce currency inconvertibility and transfer risks over 2018.
However, positive developments belie Egypt’s weak sovereign credentials. In September 2017, the Central Bank of Egypt revealed that in Q2 2017 public debt expanded by EGP 2.6 trillion, the largest quarterly increase for several years. Whilst rebounding growth has supported a reduction in the overall debt burden, to 91.1% of GDP in June 2017 from 96.7% the year before, this remains significantly elevated.

Investment Environment

There will be numerous investment opportunities in Egyptian water infrastructure, as the government works to improve water supply amidst demographic pressures. The government is keen to encourage private investment in such projects, as state entities largely lack the technical expertise required. For example, in January 2018 Sisi announced plans to build a USD 3.96 billion water treatment plant in an unspecified location. Private investors will benefit from a robust PPP framework. As of December 2017 there were 39 projects being developed under a PPP model, six of which are water infrastructure projects, totalling USD 916 million.

The government’s reliance on private investment in the sector will also reduce expropriation and contract alteration risks, and business-friendly reforms are likely to proceed under the IMF programme. However, the legal system is inefficient and subject to political interference, particularly following the approval of legislation in May 2017 that grants President Abdel Fattah al-Sisi the power to appoint the heads of Egypt’s major judicial bodies. As a result, foreign investors may find it difficult to have judicial rulings enforced on commercial disputes and many foreign investors will prefer to seek arbitration in disputes.

* Depending on deal specifics, pricing may reach 3% - 5% p.a.

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Nigeria, Mongolia, Angola, and Vietnam all of which have been the subject of recent enquiries from JLT's client base.

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.

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